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Squaring the Frame

We are in a series exploring the idea of a single payer healthcare system. Click here to find the prior posts.

You knew I was going to milk this single payer series for a long time, didn’t you? But what else are we going to talk about – progress in the Senate? Lord, there is an oxymoron.

My undergrad degree was in psychology. What many people think of psychology – clinical and abnormal – was to me just a rehash of my latest family reunion. Just (mostly) kidding. I was drawn to social psych classes where we got to read about these cool studies that now show up all the time in Malcolm Gladwell books and my Freakonomics podcasts.

One of my favorites was the ‘unsquarable picture frame.’ The researchers cut the matting in a picture frame crooked so that no matter what, you could not make the picture ‘look straight.’ If the frame was level, the matting was slanted and vice versa. I think the point of the study was just to mess with the OCD types who kept getting up time and again to try to straighten the picture. Yep, messing with people in the name of science. No wonder I liked it.

The history of Medicare Advantage (MA) is something we need to explore before we progress with this as a single payer idea because CMS is having trouble getting the frame to square.

Initially, CMS paid MA plans 95% of the cost of traditional Medicare. That was great because the government got a 5% savings right off the top and the plans, along with their at-risk provider partners, were on the hook and got to pocket any savings below their capitated payment.

Good for taxpayers, but this was not attracting enough MA plans, particularly in rural areas. There was also a concern that the plans would cherry pick the healthy (65 year old biker? Come on in. 88 year old obese smoker? Nope).

So, in the late 1990s, Congress began to tinker with the reimbursement formula (no story that contains that sentence will end well). They established a payment floor for rural counties, but then had to establish a floor for urban counties, which meant just upping the rural floor. Then they just upped the payments, then added a bidding process, then added quality bonus payments and adjustments for the sickness level of patients. Tinkering begets tinkering.

Consequently, by the time the Obama crew started drafting the ACA legislation, MA plans were costing 14% more per beneficiary than traditional Medicare. Yep, in 20 years we went from a guaranteed 5% savings to paying a 14% premium. And you wonder why I am congenitally predisposed to trust the market over the government?

The ACA had a little covered provision to bring MA plans back in line with traditional Medicare and as of this year, that is mostly implemented, but of course with far more complexity than the original 95% deal. We went around the world to get across the street, which technical works, if it is a little inefficient. The question will be how the fix for taxpayers effects the number of competitors and what they offer to the beneficiaries.